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Globetronics, with US$92mil revenue in 2012, sees gestures as future trend in devices

First in world to integrate proximity sensor, emitter to a single chip, smallest in the world

IT was the hot startup of its era – before the Internet and its dotcom craziness, before smartphones, before buzzwords like pivot, and almost before the venture capitalists (VCs) came in.

Though a Malaysian Government VC did play a critical role in its early days, which today sees Globetronics Technology Bhd standing proud as a leading listed Malaysian company in the semiconductor value chain, with revenues in 2012 of RM290 million (US$92 million). Near-term revenue growth looks set to be strong with RHB Research Institute forecasting 2013 revenues hitting RM361.8 million (US$114.8 million) and 2014 reveneus of RM448.1 million (US$142.1 million).

It is also a company that has the enviable record of having enjoyed a continuous string of profitable quarters since its inception in the northern Malaysian state of Penang in 1991 – a sizzling run. This attracted the attention of Malaysian Technology Development Corporation (MTDC), then a newly launched government venture fund.

MTDC came in with a 30% stake in 1992 at a PE (price/earnings) ratio in the high teens, and the confidence from this investment provided a further fillip to the founders that they were on the right path.

Globetronics did have a running start as a startup too. It began life with a multinational giving it guaranteed business, in this case the Penang operations of US semiconductor giant Intel Corp.

But there was still a lot of ups and downs for the founders. For instance, just as banks today don’t understand the Internet, back then, they did not understand the semiconductor sector.

“So the founders had to dig up every dollar saved, RM3 million, to start Globetronics,” says Heng Huck Lee, its chief executive officer.

Heng, came on board in 1996. Like Globetronics founders Ng Kweng Chong and C.K. Tan, Heng was formerly at Intel too.

Why did Intel encourage Ng among all their senior Malaysian team at that time, as the person they wanted to outsource production too? According to Heng, this was because, as a general manager of Intel Malaysia at the time, Ng was seen as having the most financial resources to be able to fund Globetronics before revenue flowed in. “Plus, he came from a family that was fairly well off too,” says Heng.

The management team today is led by Heng, with Ng’s son, Ng Kok Yu, involved as corporate manager.

While Intel gave Globetronics a running start, including recommending it to Sumitomo as its local partner when the Japanese firm wanted to establish a manufacturing operation in Malaysia in 1994, Globetronics does little to no business with Intel today. In fact, all its end customers are overseas.

At the same time, the founders and their management team have since then made all the right bets to transition from a low-end player in the semiconductor value chain to an integrated IC (integrated circuit) design and manufacturing company.

Globetronic’s newly installed multimillion-dollar manufacturing line.

In fact, one of the world’s top two smartphone manufacturers has seen fit to sign an exclusive three-year manufacturing contract with Globetronics to supply it with the high-end sensors that go into smartphones and tablets.

When asked about the secret to its success, Heng just says, “Technology changes to fast that you are forced to adapt or risk being left behind.

But one clue may lie with Globetronics’ strong focus on not just R&D, but also D&D or design and development, which is very much led by customer needs. The research unit was formally established in 2002.

“Our D&D is focused on our customers’ future requirements, and this allows us to stay relevant to them and to help us reinvent ourselves,” says Ng Kok Yu, pointing out that Globetronics was among the first Malaysian IC manufacturers which ventured into making LED (light-emitting diodes) components in 1998.

As a result, it has been enjoying 20% growth rates in that business line ever since.

Customers will typically want to test a manufacturer out first by giving it a small job. When they have a little more confidence in you, they will then ask to co-develop a product and after that, the next step is to have you make the product for them.

“This is how we have gained knowledge, new technologies and products; and how we have moved up the value chain with our customers,” says Heng, whom Kok Yu credits with having a sharp nose for future technology trends that Globetronics has bet on.

The current trend it has invested heavily in to build capacity is around the use of sensors in smartphone and tablets, especially proximity sensors to save battery life, and gesture sensors.

“New sensors such as gesture sensors are coming very soon and here we have a very good partner from Switzerland with whom we have co-developed the technology, and herein lies our competitive advantage,” claims Heng.

Globetronics is also claiming to be the first company in the world to integrate the proximity sensor and emitter into a single chip. Apparently, most companies cannot package this into an integrated chip due to limitations in sensitivity and limitations in technology to package it small enough.

But Globetronics has, with its sensor (pic: smart phone sensors on a 8" wafer substrate) being the smallest in the world.

“This is our competitive advantage and is not an easy technology for people to try and take away our market share. That’s why no one can replace us,” claims Heng.

Its efforts in research have not gone unnoticed. MIDA (the Malaysian Investment Development Authority) has granted it an RM20-million (US$6.3-million) Domestic Investment Strategic Fund in 2012, which is claimed via reimbursement.

MIDA is a government agency that promotes the manufacturing and services sectors in Malaysia.

The funding will likely used for enhancing Globetronics’ sensor technologies and smartphone imaging products.

It was not an easy journey. It took 15 months of convincing to get its Swiss customer to co-produce this sensor. Along with the global smartphone customer, “the process has been very demanding, and particularly in terms of them assessing our company systems and people,” says Heng.

But Globetronics has passed all the meticulous tests and is not resting on its laurels. Heng shares that it has a small war-chest of up to US$20 million for a ‘first bite’ to invest in interesting companies.

“So far, we have not seen anything that we have been unable to resist,” he says, eager to emphasise that Globetronics is still as hungry as ever. It will grow via the acquisition method or organically.

For now, with its focus on the LED and sensors market, Globetronics is looking at between 15% and 20% annual growth over the next three to four years.

“We are very confident that we have the right products in the right growing segments. Coupled with that, if we can translate all our major efforts in development and R&D to some new products, the next three to five years will be very exciting for us,” says Heng.